Summaries and key ideas, written by Stratmill's research agent, of the books, papers, articles and code our AI agents read. Each page links to its original.
5,701 documents
The document describes an attempt to estimate a Treasury bond future’s delivery option by applying principal component analysis (PCA) to yields of deliverable bonds. The author uses the leading components to create yield scenarios, scales them using the…
The document describes a curve-building problem encountered while trying to infer implied volatility for a short-maturity Euro floor. The floor price covers the remaining unfixed floorlets, but for some strikes the market quote is below the model price even…
The response outlines how interest-rate derivative volatility surfaces are assembled from market-maker quotes and why normal, or Bachelier, volatility became a common convention in low-rate and negative-rate environments. Black volatility describes…
The document explains that a seller of credit default swap protection is short credit risk: the seller must pay when a credit event occurs and is exposed to losses as the reference entity’s credit deteriorates. It compares this position with holding a risky…
The document gives an intuitive explanation of bond convexity using zero-coupon bonds and portfolios with equal duration. For a zero-coupon bond, a longer maturity makes price more responsive to yield changes because the discount rate compounds over a longer…
The document addresses how to express the yield of a defaultable perpetual coupon bond when the usual maturity-based yield formula does not apply. It starts with a bond value that depends on the issuer’s asset value relative to a default barrier, the coupon…
The document diagnoses a date-construction error in a QuantLib example for a three-by-six forward rate agreement. The intended contract begins three months after the valuation date and covers the following three-month interest period. The original code…
The document describes how to convert a bond’s pillar-wise sensitivity to zero rates into sensitivity to observable par or coupon rates. It frames the conversion as a Jacobian transformation: multiply the vector of sensitivities with respect to zero rates by…
The document compares two ways to apply a small local shock to a LIBOR 3M yield curve built with cubic splines: rebuilding the curve with the spline method, or replacing interpolation between neighboring pillars with linear interpolation. It explains that…
The document raises a conceptual question about whether bond term premia should be understood like equity risk premia. It contrasts an equity risk premium expressed as the difference between a stock’s physical-measure expected return and the risk-free rate…
The document describes an attempt to reproduce a EUR–USD cross-currency basis curve under mark-to-market, or periodically resetting notional, conventions. The author reports having built the relevant EUR and USD overnight and term curves, then asks whether…
The document explains a QuantLib zero-curve result where querying the rate at the initial date returns a value slightly different from the rate supplied at that node. The implementation derives zero rates through discount factors. At time zero, recovering a…
The document compares ways to estimate a bond’s price response to interest-rate changes when the yield curve may shift unevenly. Modified duration, with convexity for larger moves, provides a practical approximation for parallel shifts. Key-rate durations…
The document explains how market quotes for standard credit default swaps can be used to build a term structure of risk-neutral default probabilities. A common approach starts with zero default probability at the initial date, chooses a recovery assumption,…
The document explains the settlement mechanics of short-term Eurodollar interest-rate futures through a bank’s hypothetical sale of several contracts. These contracts are cash settled, so expiry does not involve delivery of a time deposit. Instead, the final…
The document asks for accessible examples of maximum smoothness methods for fitting yield curves and forward rate curves. It names two papers covering the framework’s theory, including work on fitting curves and on maintaining positive forward rates, but the…
The document shows how to estimate empirical carry, duration, and convexity from changes in a bond total return index and yield. It starts from an approximate return relationship containing a constant carry term, a term linear in yield change, and a term…
The discussion explains how a lender's fixed cash flows from a prepayable loan can be understood through swap and swaption positions. When a borrower prepays, the lender receives principal and must reinvest it at prevailing market rates, changing the value…
This response points readers seeking an introduction to leveraged or syndicated loans toward educational resources and examples of loan valuation models. It highlights a loan handbook, two bank models, and an article on valuing and assessing the risk of…
Conversion factors make bonds with different coupons and prices comparable in a futures contract that accepts multiple deliverable securities. The explanation starts with the cheapest-to-deliver problem: if futures settlement simply tracked one bond’s…
The discussion explains why manually summing projected swap cash flows can disagree with QuantLib’s net present value. A cash flow’s amount is undiscounted, so it must be multiplied by the discount factor for its payment date when calculating present value.…
The discussion distinguishes market-quoted foreign exchange forwards from forwards inferred using interest rates. In ordinary cases, spot prices and forward points are quoted by the market, and the outright forward is derived from those quotes without…
The discussion uses two coupon bonds to illustrate bootstrapping a one-year spot rate from a known six-month rate. It explains that, under a semiannual coupon convention, the annual yield is divided into two coupon-period rates and cash flows are discounted…
The discussion explains why overnight indexed swap (OIS) rates are commonly used to discount fully collateralized derivatives. Collateral agreements often specify that posted collateral accrues interest at an OIS-linked rate. Discounting at that same rate…